aside Will The DOJ And/ Or The SEC Take Action Against Wells Fargo’s Top Executives?

John Stumpf

On 9/20/16, the Wells Fargo CEO, John Stumpf testified before the U.S. congress where he was aggressively questioned by U.S. senators from both sides of the aisle about the millions of bank accounts opened without the consumers’ knowledge or prior approval.

It has been alleged that the financial service representatives were under such intense pressure to cross sell at each and every customer contact, in order to attain the goal of 6 to 8 accounts per client, that some agents sold bank products without their customer’s knowledge to pad their stats. In comparison, the vast majority of financial institutions average 3 accounts per client.

While Mr. Stumpf’ delivered his opening statement to the senators, he claimed that, he as the CEO, was taking full responsibility for the harm that has been done to their customers and that the company would be taking the appropriate corrective steps, including the recent firings of 5,300 low level employees who were found to be guilty of these types of offenses.

The problem with Mr. Stumpf’s mea culpa is that his performance was an encore of the play book previously acted out during a similar scandal uncovered by the LA Times in December 2013, (Article is footnoted below). This proves that high-ranking bank officials knew by 2013 that the illegal conduct was pervasive. The LA Times exposé reported that Wells Fargo employees had “opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged customers’ signatures on paperwork.”

The beginnings of this widespread practice of cross selling new products with unrealistic goals set by management of financial and insurance businesses, coincidentally occurs with the advent of huge call centers being built around the country (around 2007-2009). For example, Wells Fargo has at least 20 call center locations by which the bank’s agents handle the bulk of customer service calls.

In one of my business blogs, “Nutty Consumer’s 1st Rant v Cookie Cutter Call Centers,” I note the following:

The “cookie cutter” call center systems business is a billion dollar industry and the marketers sell their systems to companies with the virtual guarantee of increased profits by streamlining the operational costs pertaining to their parts of the organization which interact directly with the consumer. The question is how does a company implement this “cookie cutter” call center system designed to increase profits by cutting operational costs while still maintaining an improvement in the other companies’ goals which are increasing customer satisfaction rates; increasing customer retention rates; increasing employee satisfaction rates; lowering employee turnover; and increasing revenues and market share in a competitive world. It is my opinion that those companies which utilize this “cookie cutter” call center prototype will show an increase in profits due to cutting operational costs but ( without customization) they will also suffer a decrease in many of their other goals.

If the DOJ and /or the SEC does not make Wells Fargo top executives pay a price to demonstrate that there will be accountability for wrongdoing, fraud, etc., then the public will not believe that when and if there is another financial meltdown, that it won’t be the taxpayers paying the price again. This will further erode any of the American taxpayers’ faith in their government’s ability to act on their behalf.

The following excerpts are from the 9/22/16, New York Times published article, “Wells Fargo Tests Justice Department’s Get-Tough Approach by James B. Stewart:

“Deputy Attorney General Sally Quillian Yates issued tough new guidelines last year for federal prosecutors. “One of the most effective ways she said, is by seeking accountability from the individuals who perpetrated the wrongdoing.”

“In Wells Fargo, the government may have the perfect first case.”

Wells Fargo Call Center

“We should really hold the Department of Justice’s feet to the fire here,” said John C. Coffee Jr., a professor at Columbia Law School who is an expert on white-collar crime. “Do they really mean what they said in that memo? Will they pursue individuals and not just the underlings. United States attorneys from three jurisdictions- in New York, San Francisco and North Carolina–have sent subpoenas to the bank, indicating Wells Fargo now faces a number of criminal investigations.”

(At the hearing, Senator Elizabeth Warren said) “You should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.” On Thursday, a group of senators asked the Labor Department to investigate the bank’s employment practices. But calling for an investigation is easy compared with actually convicting high-ranking executives of a crime, or even proving civil liability, as the government’s poor record with post financial-crisis mortgage fraud cases has demonstrated.”

“Brandon L. Garrett, a law professor at the University of Virginia and author of “Too Big to Jail.” did not want to speculate about the eventual outcome of the Wells Fargo investigations. Still, “based on past experience, it’s incredibly rare to see high-level officials prosecuted,” he said. “

“Despite the long odds, and the layers of bureaucracy that typically insulate top executives from knowledge of wrongdoing, Wells Fargo may prove the exception.“I disagree with the fact that this is a massive fraud,” Mr. Stumpf told the Senate Banking Committee. Nonetheless, he said he was “fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust.”

“But opening accounts without customers’ knowledge, even forging signatures — and then charging them fees — isn’t some kind of gray area or borderline behavior. As Senator Patrick J. Toomey, a Pennsylvania Republican, put it this week: “This isn’t cross-selling, it’s fraud.”

“Under corporate criminal law, Wells Fargo is strictly liable for the criminal behavior of its employees acting within the scope of its business.The Justice Department has 10 guidelines for when it should pursue criminal charges against a corporation, recently updated to reflect its more aggressive posture toward individuals.”

” Among the most important factors is “the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management.”That provision strikes at the heart of the Wells Fargo affair, given that this was an epidemic of bogus accounts,” Professor Coffee said. “This wouldn’t have happened without pressure from the top.”

United States Department of Justice /https://www.justice.gov/ Sep 9, 2015 –MEMORANDUM FOR THE ASSISTANTATTORNEY GENERAL, ANTITRUST …Sally Quillian Yates~ … that are already employed by federal prosecutors. … This memo will also apply to civil corporate matters. .

18 comments

Dear Jueseppi, If the DOJ and /or the SEC do not take action v Wells Fargo’s, then they are advertising that they are not capable of taking on the big banks. GRAZIE MILLE!! Thanks a million for all of your support and for this reblog. Ciao Bello, Gronda

Dear Keith, I hope so. When I watched him on C-Span at no time did he remotely accept responsibility for the dysfunctional culture that has been created at Wells Fargo. If the board wants to salvage this bank’s already bruised reputation,, those on the board will have to act quickly.and end this cross selling practice at each and every call. Also the executives need to take an ethics class. The blog that I will post on 9/26 has a reference to law suits filed v Wells Fargo with a synopsis. It is an eye opener!!

AMEX has lots of call centers but they ended this practice in 2006. Zappos does business via call centers but they have never used this sales technique. Both are successful enterprises.

Cross selling at the appropriate time can be a useful tool. It is not a negative until it is made an absolute requirement.at all contact points.

The call center marketers sold their systems to guarantee profits, while the analytics used downplay the negatives.

Here is what an insider writes:

“Listen to the words from an insider, Andrew O’Brien about the “cookie cutter” call center as per his blog, Why the ‘Cookie Cutter‘ Call Center Doesn’t Deliver High Quality CustomerExperiences…http://www.blueocean.ca; “There’s something to be said about the consistent messages that are advertised by call center outsourcers. When companies are seeking a partner to handle their customer service calls, most organizations hear the same age-old promotions: “we’re different,” “we provide outstanding customer experiences,” and “come read our case studies to see why we are so great!” But when the truth is told, most centers are the same: cookie cutter operations with different agents.” No matter how many cookie cutters talk about their unique culture and approach, they fail to deliver high quality customer experience”s.

“He adds the following words in another blog; “Again, cost cutting measures that are used to create competitive advantages result in universally poor customer experiences. This also applies to the investment made into culture and company character: when any type of business invests in the satisfaction of its people, great things usually happen – including increased efficiency and productivity.”

Another study by Kerry Bodine, a leading Forrester researcher, found that cultural change is the most effective tactic for improving the call center experience. Agents at companies who placed the highest importance on culture (ironically also the most successful) were happier and more passionate about their work performance.”

The management will not alter their sales culture unless the board comes down hard.The message needs to be conveyed that lazy management always looking for the easy gain and to cut corners are no longer welcome.

Great feedback and I look forward to your post. Another key is call centers have high turnover, so there is inconsistent quality and understanding. The customers play a huge role in navigating the quality of their service, but many don’t know that.

Dear Keith, The standard financial industry turnover rate is about 50% which is costly. Wells Fargo’s turnover rate is 90% as per Glassdoor…- 90% attrition rate should say it all | Glassdoorhttps://www.glassdoor.com/…/Employee-Review-Wells-Fargo-RVW852127…
Mar 14, 2011 – “90% attrition rate should say it all”. Star Star … Other Employee Reviews for Wells Fargo … Former Employee – Loan Officer in New York, NY.
Wells Fargo – high turnover for a reason | Glassdoor
Glass Door and Indeed are great resources for this kind of data. I.E: Wells Fargo – This company has one of the highest turnover …www.glassdoor.com › Reviews;

One of the hidden problems has to do with the call center employee attrition rate approaching 50% for large organizations incurring mostly inbound calls (vs.90% for Wells Fargo). According to a write up, published in 2012, http://www.trostle.com,”; Managing Hidden Costs of Contact Center Teams In The New Economy, turnover is described as follows: “Turnover is the percentage of the total number of agents leaving the call centre over 12 months, divided by the number of seats during the same 12 months. Turnover can be healthy or unhealthy, functional or dysfunctional, voluntary or involuntary, avoidable and unavoidable. Research from Chris Bracken of Call Me! IQ reports that “Industry data shows large call centers average 49% annual attrition, . . . call centers focused on outbound dialing average more than 60% annual attrition. Turnover costs have a significant impact on the department budget and company profitability. Total costs can range from 60 to 200% of an employee’s annual salary, according to various reports. One study estimated that turnover-related costs represent more than 12% of pre-tax income for the average company and up to 40% for companies in the 75th percentile.”

The report continues: “There are both tangible and intangible costs associated with turnover. Intangible costs include: low morale; lack of commitment; breakdown of trust; critical skills or knowledge drain; dissatisfied customers; lost intellectual capital; reduced reputation; potential lost customers. Tangible costs (both voluntary and involuntary) include hiring costs associated with replacing an employee: third party recruiter fees; online system and advertising costs; candidate interviews (assessment, testing, and screening fees); new hire bonuses, referral fees, and sign-on incentives; processing and time associated with replacement (HR, management, multiple interviews and departments involved); training new hire costs – on boarding process and associated costs of acclimating a new employee to the environment (mentor or co-worker time) In the case where a replacement cannot be found quickly or it is decided not to replace, there are costs associated with redesigning the work, as existing employees must be retrained to cover the vacancy and overtime must also be paid in order to cover the additional work. In addition, there are lost productivity or business costs – includes the “savings” incurred by not paying wages for the exited employee, and it also includes costs associated with low morale, lost revenue and the performance differential for the new employee as well as costs associated with lost sales.”

Customerthink.com published on 7/28/16, “Curbing Agent Burnout In a Call Center,” by Kelechi Okeke:

“Call centers are high pressure environments, you have to deal with customers rude or nice, you also have to bear in mind that your calls are being monitored and timed, comes with a lot of stress (physical and emotional).”

“Call centers have become notorious for having one of the highest employee attrition rates of any industry. According to this post by QTA, attrition rates for the call center industry ranges between 30-45%. Comparing this to the 2015 average employee turnover rate for all industries which was pegged at 16.7%, you can a see why burnout is such a problem in the call center business. But…”

“What makes call centers stressful?”

“A variety of factors can contribute to stress levels in a call center, some of the common causes include;”

My words: If your company wishes to continue to be proud of being an exceptional company which provides outstanding products and customer service, then do not give into the “fools gold” marketed by the call center systems sales teams without any modification as to how customer satisfaction and employee satisfaction is measured. Do not compromise!

Gronda, great summary. The cost of turnover is underestimated due to all of the soft and hard dollar costs you noted. In short, a well run bank makes about $2 for every $1 it spends in compensation and benefit for its employees. With higher turnover than average and its residual impacts, that extra dollar of profit is eroded for all of the reasons noted. Good information, thanks. Keith

Thanks for your constructive feedback. You explain the financial impact better than I do.

Yes, turnover is a costly problem at Wells Fargo and its attrition rate is much higher than its competitors. The other concern would be the retention rate of current customers. You cannot go by satisfaction surveys because there are ways for employees to fake/ manipulate the numbers. Also within the call center environment, I would want to review average number of days of unplanned absenteeism by employees; and the number of days employees are out on disability leave due to mental health issues (The type of call centers like Wells Fargo are very stressful on the front line employees.). These issues cost the company a lot of monies.

When the call center marketers sell their services, the concept of profits is emphasized. The company has to insist on modification to mitigate potential negatives. Yes, it is the call center marketers which sold the concept of cross selling on steroids.

The other problem is that the college stars look at the websites of Glassdoor.com and Indeed.com to check out which companies they would like to pursue for employment. When there is real business competition for top notch college grads, the companies with poor ratings will not be employing the best talent.

Great point on where grads want to work. I know a great deal about the bank Wells bought in the newly named Wachovia – First Union bought Wachovia and took there name. Just like Norwest bought Wells and took their name. First Union/ new Wachovia made two of the worst financial transactions in banking history, buying Golden West and MoneyStore. The latter buy was dumb the day it was announced and they shuttered it a few years later and wrote off $4.3 Billion. But, the transaction which epitomizes your point is First Union bought CoreStates and tried to implement a future bank concept at the same time. The bank lost 400,000 of CoreStates’ 2 million customers, an unheard of failure. The CEO fired the COO, but a Board member resigned and said “You fired the wrong guy.”

Dear Keith, It sounds like you are more than familiar with the foolish management by Wachovia bankers. You always know a lot about business issues. Thanks for sharing this info. Incidentally, I have ordered the book and movie that you recommended, Ciao, Gronda

Of course it’s fraud. Blatant, in your face fraud. This shouldn’t even be discussed. These people should be in jail pending trial. Always the same corrupt pattern that tells the top levels they can get away with murder: “based on past experience, it’s incredibly rare to see high-level officials prosecuted,” There’s the problem. Two-tiered “justice” system that jails people for jay-walking, or a missing tail light but lets corporate criminals not only walk, but, as in the case of “too big to fail” pays them out of the tax payer’s pocket. Such corruption is beyond fixing now, and however loud the senators are screaming, the guilty high level know they’ll walk away scot free and perhaps with added pocket change like a few extra millions so they can “keep the economy going” by buying a new yacht.

I couldn’t agree more. Imagine if you were a Wells Fargo Frontline agent who stole less than $50.00. You would definitely pay a price. Yet this company STOLE MILLIONS OF DOLLARS FROM THEiR OWN CUSTOMERS WITH THE TOP LEVEL EXECUTIVES BEING FULLY COMPLICIT WITH THIS BEHAVIOR. The problem is that this company has been getting away with this for years. It is time the executives pay a price.

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Welcome!! It looks like the California Department of Justice is stepping up to the plate to file criminal charges against Wells Fargo. Kamela Harris is the attorney general and it looks like she is serious. The LA Times broke this news just this past week.